Chart of the week: Australia’s underperformance on unemployment

22 February 2019

Bob Cunneen, Senior Economist and Portfolio Specialist

Source: Reserve Bank of Australia and Australian Bureau of Statistics.

Australia has recorded strong jobs growth over recent years. Australia’s unemployment rate has also managed to gradually fall to 5% (black line). This is essentially the lowest unemployment rate since 2012. Both strong jobs growth and a lower unemployment rate suggest that Australia’s labour market is making encouraging progress.

However the Reserve Bank of Australia (RBA) on 8 February noted that the “labour market could still have spare capacity”. One possible measure of this ‘spare capacity’ is the underemployment rate (red line). This underemployment rate measures those workers that “would like and are available to work additional hours”.

Currently Australia’s underemployment rate stands at 8.1% and is still well above the 7% underemployment rate in 2012. This indicates that Australia’s labour market is still underperforming in generating sufficient working hours. So until the underemployment rate falls, Australia’s wages growth and inflation pressures are likely to remain subdued. This suggests that the RBA has little choice but to persist with a low cash interest rate at 1.5%.

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